Wednesday, October 10, 2012

Barnes & Noble (BKS) - Vol Pops But Remains Depressed as Nook News is Good; Solvenecy and New Technology but Low Risk?

BKS is trading $14.80, up 7.2% with IV30™ up 14.1%. The LIVEVOL® Pro Summary is below.


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Barnes & Noble, Inc. (Barnes & Noble) is a bookseller. The Company is a content, commerce and technology company that provides customers access to books, magazines, newspapers and other content across its multi-channel distribution platform.

I found this stock using a custom scan searching for names where IV30™ is up at least 10% on the day. The scan details are below with a snapshot if you want to build it yourself in Livevol® Pro.

Custom Scan Details
Stock Price GTE 10
Average Option Volume GTE 1,200
Days After Earnings GTE 5 and LTE 60
IV30™ Percent Change GTE 10%
IV30™ GTE 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The BKS Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see the enormous pop in late April on this news:

Microsoft made a $300 million investment in the e-commerce business of Barnes & Noble, propelling the book retailer’s shares up 50% for the day. After the announcement, the B&N market capitalization jumped to $1.2 billion from $800 million pre-announcement.

B&N and Microsoft will form a subsidiary to market e-books and digital devices in the fast-growing market for on-line content. B&N wants to accelerate sales of its NOOK digital reader and its large inventory of electronic copyrights.

Source: Forbes via Yahoo! Finance; Barnes & Noble Shares Skyrocket 50% Post Microsoft eInvestment, written by Susan Kalla.

Since that time, however, the stock has headed essentially straight down, going from a closing peak of $20.75 to now under $15.

On the vol side we can see a pretty smooth ride in the implied, until today. BKS IV30™ is up 14% on this news:

[BKS] moved higher after its CEO said the company is gaining share in Nook subscriptions.

Source: via Yahoo! Finance; Midday Movers: BKS, SIRI, PCS & More, by Rich Fisherman.

It's fascinating that the survival of BKS (which was in doubt a little while ago) is now almost entirely dependent on an e-reader rather than, ya know, the book stores. Good for them for tuning it around but what an odd twist (IMHO). More specific to the vol, I note that the 52 wk range is [50.55%, 112.73%], putting the current level in just the 28th percentile even after the pop today. Does it feel like the implied should be this low (relative to its own history) given all of the stuff above? Isn't solvency still an issue alongside a potential firm specific technological boom? Hmm....

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see how the font month lies well above the back. This term structure is in direct reaction to the news today. I have included the Skew Tab from yesterday to demonstrate the change.

Note that the front month (red curve) was below the second month (yellow curve) for the ATM options. Then today happened.

Finally, let's look to the Options Tab.

Across the top we can see that Oct is priced to ~70% vol while Nov is priced to 68%. Again, this is more of a vol gainer but vol low story where solvency and new technology seem to be at play at the same time for a... book store...

This is trade analysis, not a recommendation.

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